Reply to: Contract nearing 24 months

[pr1]

How can you not?

Like I said, if there's any doubt, stop claiming and sort it out when you do know.

I read it.

By your reading, if a guy is taken on for a 5 year project, and after three months they say, "Man, we really like your work, hope you'll stick around until this is done," he should stop claiming expenses, and then charge them back if he doesn't stay more than 24 months.

By my reading, he claims expenses up until the time he is offered an actual contract that takes him past 24 months. Arguably, he could keep claiming until he signs that contract. Until that point there is no reasonable expectation, because he can clearly just walk away, and if he can find another contract in another location so he doesn't lose T&S expenses, he probably will walk away.

It would be almost impossible for HMRC to prove there is a reasonable expectation before a contract is signed. They MIGHT be able to argue it's there once the contract is offered. They might even be able to argue it is there if letters have been exchanged saying, "We're going to offer to extend you," on one side and "I'll be glad to do that," on the other side.

The purpose of the "reasonable expectation" clause is not to base your taxes on reading your tea leaves and whether you think maybe you'll get an extension. It's so that if someone signs a contract that is going to take them past 24 months, they could be expected to have moved rather than get a tax break on their T&S. It's so people at 21 months don't sign a contract that takes them to 23 months and 29 days, with a wink and a nod that they will extend again after that.

Your approach on this is certainly safe, but also costly. The guy who extends for six more months after 21 months on site should lose his T&S from 21 months on. If he ends up being terminated before 24 months, he should then claim expenses from 21 months to termination.

But he shouldn't lose expenses from 18 months on because someone said to him, "I think we're going to want to extend you when the 21 months is up." Or because he knows they are likely to offer it based on the state of the project. That's all speculative.

AFAIK (I've asked on here before and googled a lot) no one has ever had to pay back tax for less than 24 months under the "reasonable expectation" rule. Certainly it's wooly enough they couldn't enforce a penalty on it so the worst possible case if you keep claiming right up to 24 months is you pay the tax you would have paid anyway on those last few months expenses (+a couple of percent interest)

IMO IANAL IANAA

[SuperZ]

No, someone's word is not the same as having a contract for the period, ie, if they issued a contract after 3 months for the full 5 years then yes, they should stop claiming it at the 3 month point. But, you'd be a fool to take such a contract anyway, better it be broken down into 6 month blocks at least, and there's nothing to stop you suggesting that to the client.

By taking the 5 year contract, even if you expect to leave before the 2 year mark, you should still not claim the expenses as you've agreed to work on the 5 year contract. regardless of what's in your head.

Simple really, if HMRC wanted to look into your expenses, when did you start working with the org and what does you current contract state as the end date? If end date >= 2 years from start then stop claiming as that is what will make HMRC kick up, and rightly so

[WordIsBond]

Yes, but read all of my post. If it turns out you haven't blown the 24 month rule, you can sort it retrospectively. There's nothing saying you have to pay expenses the second they are incurred or that YourCo has a time limit on claims made.

I read it.

By your reading, if a guy is taken on for a 5 year project, and after three months they say, "Man, we really like your work, hope you'll stick around until this is done," he should stop claiming expenses, and then charge them back if he doesn't stay more than 24 months.

By my reading, he claims expenses up until the time he is offered an actual contract that takes him past 24 months. Arguably, he could keep claiming until he signs that contract. Until that point there is no reasonable expectation, because he can clearly just walk away, and if he can find another contract in another location so he doesn't lose T&S expenses, he probably will walk away.

It would be almost impossible for HMRC to prove there is a reasonable expectation before a contract is signed. They MIGHT be able to argue it's there once the contract is offered. They might even be able to argue it is there if letters have been exchanged saying, "We're going to offer to extend you," on one side and "I'll be glad to do that," on the other side.

The purpose of the "reasonable expectation" clause is not to base your taxes on reading your tea leaves and whether you think maybe you'll get an extension. It's so that if someone signs a contract that is going to take them past 24 months, they could be expected to have moved rather than get a tax break on their T&S. It's so people at 21 months don't sign a contract that takes them to 23 months and 29 days, with a wink and a nod that they will extend again after that.

Your approach on this is certainly safe, but also costly. The guy who extends for six more months after 21 months on site should lose his T&S from 21 months on. If he ends up being terminated before 24 months, he should then claim expenses from 21 months to termination.

But he shouldn't lose expenses from 18 months on because someone said to him, "I think we're going to want to extend you when the 21 months is up." Or because he knows they are likely to offer it based on the state of the project. That's all speculative.

[SueEllen]

Off topic, but could you expand on this? Any articles that might be of use...?

Best start a new thread asking this question then can point to links.

[l35kee]

Another suggestion would be to do some more research in to the way you work and the legislation surrounding it. Thinking 24 months and IR35 are related is a pretty fundamental mistake. A better understanding of IR35 and what it covers should have made it clear these aren't related.

That level of knowledge and 2 years in to a gig through Capita I'd bet you you've got more IR35 problems than whether 24 months affects it.

Is this client a PS one per chance?

Off topic, but could you expand on this? Any articles that might be of use...?

[malvolio]

Same. I have no "reasonable expectation" of a contract being extended until I have a copy of the extension signed by the client in my hands. Until then, I reasonably expect the contract will end on the date originally agreed, no matter what noises the client might be making about extending.

How on earth could HMRC prove when you might "reasonably expect" the job to last longer than 24 months other than once you've got a signed contract to that effect?

How can you not?

Like I said, if there's any doubt, stop claiming and sort it out when you do know.

[TheCyclingProgrammer]

The earlier advice is only correct if "reasonable expectation" == "you got a sniff they might extend you". I'd say "reasonable expectation" sets a rather higher bar than that.

Same. I have no "reasonable expectation" of a contract being extended until I have a copy of the extension signed by the client in my hands. Until then, I reasonably expect the contract will end on the date originally agreed, no matter what noises the client might be making about extending.

How on earth could HMRC prove when you might "reasonably expect" the job to last longer than 24 months other than once you've got a signed contract to that effect?

[malvolio]

The earlier advice is only correct if "reasonable expectation" == "you got a sniff they might extend you". I'd say "reasonable expectation" sets a rather higher bar than that.

Chances of HMRC challenging, if he quits claiming at 22 months, are virtually nil. How are they going to prove he had a "reasonable expectation" before then? This is not intended to catch whether or not your crystal ball tells you something.

Even if OP agrees to extend, he still doesn't know he'll be there 24 months. The project could be cancelled tomorrow, or he could hit on the managing director's wife and get marched off site, never to return. But once he signs a new contract, he has a reasonable expectation he'll be there. That's the point at which reasonable expectation can be proven.

Yes, but read all of my post. If it turns out you haven't blown the 24 month rule, you can sort it retrospectively. There's nothing saying you have to pay expenses the second they are incurred or that YourCo has a time limit on claims made.

[WordIsBond]

Actually the phrase is "a reasonable expectation" of extending over 24 months. So the earlier advice is correct. If it turns out your expectation is misplaced, you can always back claim the expenses you didn't claim at the time.

And repay any expenses claimed from the point you got a sniff they might extend you beyond 24 months.

The earlier advice is only correct if "reasonable expectation" == "you got a sniff they might extend you". I'd say "reasonable expectation" sets a rather higher bar than that.

Chances of HMRC challenging, if he quits claiming at 22 months, are virtually nil. How are they going to prove he had a "reasonable expectation" before then? This is not intended to catch whether or not your crystal ball tells you something.

Even if OP agrees to extend, he still doesn't know he'll be there 24 months. The project could be cancelled tomorrow, or he could hit on the managing director's wife and get marched off site, never to return. But once he signs a new contract, he has a reasonable expectation he'll be there. That's the point at which reasonable expectation can be proven.

[malvolio]

Citation needed.

You need to stop claiming once you know you will go over 24 months. As far as I'm concerned you do not know that this will happen for certain until you've signed the extension - until then anything can happen, even if the client is making noises about a possible extension, you could still be binned.

Definitely stop claiming once you've signed the extension but until then you're fine IMO.

Actually the phrase is "a reasonable expectation" of extending over 24 months. So the earlier advice is correct. If it turns out your expectation is misplaced, you can always back claim the expenses you didn't claim at the time.

[northernladuk]

Citation needed.

You need to stop claiming once you know you will go over 24 months. As far as I'm concerned you do not know that this will happen for certain until you've signed the extension - until then anything can happen, even if the client is making noises about a possible extension, you could still be binned.

Definitely stop claiming once you've signed the extension but until then you're fine IMO.

The actual gov.uk pages use the term 'expect to' throught the whole blurb which doesn't really help. Is that when you know it's a long project and you 3 renewals in you know you are there for a long time, when the client manager says you'll be staying or when the paperwork arrives. Who knows.

[TheCyclingProgrammer]

And repay any expenses claimed from the point you got a sniff they might extend you beyond 24 months.

Citation needed.

You need to stop claiming once you know you will go over 24 months. As far as I'm concerned you do not know that this will happen for certain until you've signed the extension - until then anything can happen, even if the client is making noises about a possible extension, you could still be binned.

Definitely stop claiming once you've signed the extension but until then you're fine IMO.

[northernladuk]

Suggestions taken on board... will stop claiming travel and subsistence

Another suggestion would be to do some more research in to the way you work and the legislation surrounding it. Thinking 24 months and IR35 are related is a pretty fundamental mistake. A better understanding of IR35 and what it covers should have made it clear these aren't related.

That level of knowledge and 2 years in to a gig through Capita I'd bet you you've got more IR35 problems than whether 24 months affects it.

Is this client a PS one per chance?

[RP27]

Contract length has no impact on your IR35 status, as long as you aren't inadvertently slipping into ways akin to employment rather than the current B2B relationship that you (presumably) have.

When you know that you are going to be there more than 24 months, then you need to consider (and probably stop claiming) your travel and subsistence expenses.

Thanks for the quick response. The relationship is - the end Client's IT infrastructure is being managed by this Service provider (Capita) with whom my contract relationship is.

Suggestions taken on board... will stop claiming travel and subsistence

[Lance]

Contract length has no impact on your IR35 status, as long as you aren't inadvertently slipping into ways akin to employment rather than the current B2B relationship that you (presumably) have.

When you know that you are going to be there more than 24 months, then you need to consider (and probably stop claiming) your travel and subsistence expenses.

stop claiming expenses (related to travel and accommodation for the site) immediately. And repay any expenses claimed from the point you got a sniff they might extend you beyond 24 months.